Question

Gester Corp. is a company that manufactures various products. The company has defined the following activities and activity rates in its activity-based cost system. Direct labor Machine processing Machine Preparation Production Order Shipping & Handling Product Sustainability $ 8.75 per hour direct labor $ 3.75 per hour per machine $ 50 each preparation $ 200 per each order $ 150 per shipping $1,000 per product Required: Determine the total indirect cost that would be assigned to each of the following products (X, Y, Z) according to the expected activity level established for each one. Direct labor Machine processing Machine Preparation Production Order Shipping & Handling Product Sustainability X 300 1,300 2 1 Y 700 1,900 3 4. 6 1 Z 40 30 2 2 2 1 4 1

Answer 1

Direct labor are direct costs and thus would not be considered to calculate indirect costs
Calculation of indirect costs for each of the product is shown below:
	X	Y	Z
Machine processing	$4,875.00	$7,125.00	$112.50
	1300*3.75	1900*3.75	30*3.75
Machine preparation	$100.00	$150.00	$100.00
	2*50	3*50	2*50
Production order	$200.00	$800.00	$400.00
	1*200	4*200	2*200
Shipping & Handling	$600.00	$900.00	$300.00
	4*150	6*150	2*150
Product sustainability	$1,000.00	$1,000.00	$1,000.00
	1000*1	1000*1	1000*1
Total indirect costs	$6,775.00	$9,975.00	$1,912.50